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The laws of all 50 states permit a business to be organized as a limited liability company, or LLC, according to Nolo. Once organized and established, a limited liability company obtains the status of an independent legal entity capable of undertaking the same types of business operations as a corporation or partnership.

Function

The function of a limited liability company is to provide business owners with protection from personal liability for the activities of a business. In this way, a limited liability is like a corporation. For example, if the limited liability company is sued, the party seeking compensation cannot go after the assets of the owners of the business.

Features

The owners of a limited liability company are called members. Typically, one of the owners is designated to serve as the managing member, overseeing the day-to-day operations of the enterprise.

Effects

One of the primary effects of establishing a limited liability company is a significant tax benefit, according to IRS.gov. An LLC permits what is known as "pass-through" taxation. Unlike a corporation which must pay taxes directly, along with taxes paid by shareholders for their own profits, a limited liability company is not taxed. The tax liability passes through to the individual owners or members.

Creation

A limited liability company is created by filing articles of organization in the state where the business is headquartered. The secretary of state provides a standard form for this purpose.

Misconceptions

A common misconception associated with a limited liability company centers on paperwork and record keeping, according to "Form Your Own Limited Liability Company" by Anthony Mancuso. The misconception is that a limited liability company requires the same types of records as a corporation. In fact, one of the benefits of a limited liability company is far less substantial paperwork and record keeping requirements. For example, unlike corporations, minutes of the meetings of the members of a limited liability company do not need to be taken or maintained. A corporation must maintain these types of records or run the risk of losing its legal authority.

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About the Author

Mike Broemmel began writing in 1982. He is an author/lecturer with two novels on the market internationally, "The Shadow Cast" and "The Miller Moth." Broemmel served on the staff of the White House Office of Media Relations. He holds a Bachelor of Arts in journalism and political science from Benedictine College and a Juris Doctorate from Washburn University. He also attended Brunel University, London.